NantKwest, Inc. — FY2019 Form 10-K
Entity and period: The filing is for NantKwest, Inc. (Nasdaq: NK), not ImmunityBio, Inc. It reports the fiscal year ended December 31, 2019; quarterly data are also provided, including Q4 2019.
Business context
NantKwest was a clinical-stage immunotherapy company developing natural-killer-cell therapies for cancer and viral diseases. Its aNK platform and engineered haNK, taNK and t-haNK candidates were not approved for commercial sale. Revenue primarily came from non-clinical licensing of cell lines and intellectual property.
Financial performance and position
| Metric | FY2019 | FY2018 |
|---|---|---|
| Revenue | $43,000 | $47,000 |
| Research and development expense | $49.8 million | $55.7 million |
| Selling, general and administrative expense | $18.1 million | $42.7 million |
| Operating loss | $67.8 million | $98.4 million |
| Net loss | $65.8 million | $96.2 million |
| Net loss per share, basic and diluted | $0.70 | $1.22 |
| Cash used in operating activities | $61.4 million | $63.4 million |
Revenue was negligible relative to expenses, so conventional revenue-margin measures are not informative. The improved net loss primarily reflected lower operating expenses, particularly reduced stock-based compensation and lower R&D costs; it did not reflect meaningful revenue growth.
At year-end, cash and cash equivalents were $15.5 million and marketable debt securities were $37.6 million, totaling approximately $53.1 million in cash and investments. Working capital was $44.2 million; total assets were $143.1 million and total liabilities were $22.4 million. The balance sheet reported no financing obligation at year-end; operating lease liabilities were $14.1 million in present value, with $17.1 million of undiscounted future lease payments.
FY2019 cash from financing activities was $38.6 million, mainly proceeds from CEO Patrick Soon-Shiong’s warrant and option exercises ($39.2 million combined), partly offset by share repurchases and other items. The company reported an accumulated deficit of $662.2 million.
Q4 2019: Revenue was $9,000 and net loss was $15.6 million, compared with revenue of $7,000 and net loss of $17.3 million in Q4 2018.
Changes versus the prior year
- Total operating expenses declined $30.6 million, or about 31%, to $67.9 million. SG&A fell $24.7 million, mainly because CEO equity-award vesting-related stock compensation declined by $20.8 million and litigation costs were lower.
- R&D declined $5.9 million, principally from lower compensation and shared-service costs, reduced investigator-sponsored trial activity, and completion of intangible-asset amortization. Higher facility and manufacturing costs and a $0.9 million laboratory-equipment impairment partly offset the decline.
- Year-end cash and investments fell from approximately $79.8 million in 2018 to $53.1 million in 2019. Cash and restricted cash declined $1.3 million during the year; the company also received significant proceeds from the CEO’s exercises of warrants and options.
- Common shares outstanding increased from 79.1 million to 98.5 million, principally following the warrant and option exercises.
Outlook, risks and unusual items
- Management expected available cash, investments and the ability to borrow from affiliates to fund operations for at least 12 months after the financial statements’ issuance. This expectation relied on the CEO’s stated intent and ability to provide additional funds; there was no committed external funding source. Management anticipated higher R&D and SG&A spending and no significant product revenue for several years, if ever.
- Clinical and regulatory outcomes remain uncertain. The company highlighted planned or advancing trials involving haNK for Merkel cell carcinoma and t-haNK candidates for solid and blood cancers. Reported early responses came from small studies and are not evidence of established efficacy.
- COVID-19 was an emerging risk at filing: the company said pandemic effects on trials, supply chains and operations were unknown. It also described exploratory work on possible NK-cell approaches to coronavirus infection; these were not established clinical outcomes.
- Related-party reliance is material. The company had extensive arrangements with NantWorks affiliates, including clinical, research, manufacturing and facility relationships. ImmunityBio is an affiliate; the January 2020 cost-sharing agreement for a Merkel cell cancer trial was a subsequent event. The CEO and affiliates held approximately 67.3% of common shares at year-end.
- Unusual items included a $0.9 million impairment of laboratory equipment and settlement of securities litigation: the company paid $1.2 million of a $12.0 million settlement, with the balance funded by insurers. A separate stockholder derivative settlement included a $0.5 million attorney fee, half funded by the company.
- The company adopted lease accounting standard ASC 842 in 2019, recognizing operating lease assets and liabilities; adoption did not materially affect earnings or cash flows. The auditor issued an unqualified opinion on the financial statements. Management reported effective disclosure controls and internal control over financial reporting; the auditor did not provide an internal-control attestation.
Important facts for investors to verify
- Confirm the filing entity: this is NantKwest, Inc., although the request metadata names ImmunityBio, Inc.
- Review the full financial statements and cash-flow assumptions, especially the $61.4 million operating cash burn and management’s affiliate-supported 12-month runway estimate.
- Check subsequent clinical-trial enrollment, safety and efficacy results against the filing’s preliminary, small-sample descriptions and stated development timelines.
- Assess the terms, governance and continuity risks of related-party agreements, including the ImmunityBio cost-sharing arrangement and NantWorks services and leases.
- Track dilution, the share count and insider control following the 2019 warrant and option exercises, as well as any future financing or repurchases.
- Monitor COVID-19-related trial and supply-chain disruptions, lease commitments, and any changes to liquidity or financing needs after year-end.